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After significant capex in the ethanol segment in the past 3 years (substitute of gasoline), BRCM has announced a foray into the manufacture of polylactic Acid (PLA), also known as ‘bio-plastic’ with forward integration (conversion of sugar into PLA) . The company will invest INR 20bn (INR 8bn equity from internal accruals; INR 12bn debt mix) over a period of 2.5 years. This new venture, with a capacity of 75k tpa, will be India’s first ever bio-plastic plant on a global scale. The new plant will be a greenfield unit next to the existing sugar capacity, enabling BRCM to be a low-cost producer (saving on transportation and power). The company has started building a strong team and has appointed senior management personnel with rich experience in the global bio-plastic industry. PLA presents an opportunity arising from the circular economy (shifting to bio-based degradable polymers from fossilbased polymers). BRCM’s new endeavour is in line with the government’s commitment for Net Zero by 2070 and may entail subsidies from the Centre as well as the UP government (announced during Budget’24). We believe this is a step in the right direction given that the company is de-risking itself from government-regulated business (sugar, ethanol). As financial details pertaining to pricing/margins/RoCE have not been disclosed yet (likely over the next 4- 6 months), we have not factored in this investment in our estimates. Given the strong cash flows, we believe the company can comfortably fund this foray without significant stress on the balance sheet. We maintain BUY and arrive at Mar’25TP of INR 500 (basis 15x FY26EPS) and believe the current weakness can be an opportunity to accumulate.

* Foray into bio-plastics: In a step towards forward integration as well as business diversification, BRCM has announced that it will invest INR 20bn in the manufacture of polylactic Acid (PLA), a bio-polymer used in making bio-plastic (degradable plastics). The company will invest in phases over a period of 2.5 years to build a capacity of global scale (75,000 tpa). To lead the new business, the management has appointed senior management personnel with a rich global experience in the bio-plastic industry. Further, the new venture will be facilitated by Konkan Specialty (Konspec), where BRCM holds a minority stake, for combining compounds (PLA with other bio-polymers such as PHA), creating master-batches and recipes.

* Greenfield capacity next to existing sugar plant: BRCM’s PLA plant, with a capacity of 75,000 tpa, will be India’s first bio-plastic plant on a global scale. There are limited number of PLA producers globally (total capacity of 400ktpa), and only a few with full integration from bio-based raw material (raw sugar or starch) to PLA. The management highlighted that c. 110,000tn of raw sugar is required to produce 75,000tn of PLA. The new plant will be located on a greenfield site next to BRCM’s existing sugar plants. Hence, the company expects cost of production to be lower due to savings on transportation cost of raw material coupled with lower energy (as it will utilise captive bagasse).

* The PLA opportunity: At present, global PLA consumption is c. 300-400k tpa while plastic consumption is 400mn tpa. Globally, plastic consumption is gradually shifting to bio based plastics; Europe is expected to shift to 30% bio-based plastics. In India, consumption of single use plastic (SUP) is c. 5mn tpa (as on 2021), of which the company expects half to be replaced by PLA. As of Jul’22, Plastic Waste Management (PWM) - 2021 prohibits use of 19 SUP items for consumption; however, progress is hindered due to the absence of alternatives. With PLA capacity coming in, consumption of SUP is expected to shift to PLA. Consumption of PLA has already started gaining traction without any government push or any regulation. Renowned brands such as Starbucks, Costa coffee, Amul, etc. have incorporated PLA for items like straws, cups, stirrers and lining for paper cups. In the textile industry, major players like Aditya Birla are leveraging PLA compounds for garment packaging. Notably, the Defence Research and Development Organisation (DRDO) has recently adopted PLA for water bottles.

* Diverse applications: PLA is the best material for 3D printing, and is the most-sought-after chemical for medical devices. PLA can be used in three major forms – neat, compound and master-batches. For instance, it can be further combined with materials such as PHA (polyhydroxyalkanoates), which is another biopolymer for making the material more degradable (at lower temperature). Konspec will manufacture compounds, recipes and master-batches from PLA for BRCM.

* Maintain BUY with Mar’25TP of INR 500: Hypothetically, we estimate this project can generate NPV of INR 20bn (DCF-based estimation). However, we have not factored in these investments into our estimates as critical financial details pertaining to pricing/margins/RoCE have not been disclosed yet (likely over the next 4-6 months). Having said that, we think this is a step in the right direction and also believe that the company can comfortably fund this foray without any significant stress on the balance sheet. We maintain BUY with unchanged Mar’25TP of INR 500 (basis 15x FY26EPS) and believe the current weakness can be an opportunity to accumulate.

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